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Asset Allocation and Portfolio Construction Thoughts

Latest Thinking in Asset Allocation and Portfolio Construction

How to mitigate the risks associated with rising inflation and suggestions on ways to diversify portfolios seem to be the 'topics du jour' this month. Certainly, there seems to have been a marked shift in opinion (and bond market yields) reflecting the growing realisation that inflation is perhaps proving to be rather less 'transitory' than many central bankers had hoped.

Among the selection of papers this month are articles on portfolio diversification and inflation risk mitigation strategies, looking at potentially utilising some less frequently used asset classes. Robeco argues the case for factor premiums being a behavioural phenomenon, while PGIM Quantitative Solutions investigates the linkages and global interconnectivity between markets, which they argue creates significant opportunities for investors.

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Investing in an Interconnected World (PGIM Quantitative Solutions, Nov 2021)

PGIM Quantitative Solutions investigates how the evolving nature of markets and their interconnectedness foster new and exciting opportunities for investors.

Respecting Three Centuries of Correlation (MFS IM, Nov 2021)

MFS IM’s Rob Almeida, Global Investment Strategist and Portfolio Manager, investigates the historic correlation between stocks and bonds and suggests why asset owners should prepare for a return to a positive, rather than the negative correlation experienced in recent decades.

The Quant Cycle (Robeco, Oct 2021)

Robeco argues that factor premiums are a behavioural phenomenon rather than reward for macroeconomic risks, as they tend to follow a sentiment driven cycle that doesn’t align with the business cycle.

Rising Inflation Risk and How to Address It (T. Rowe Price, Oct 2021)

For compliance reasons, this paper is only accessible in certain geographies

T. Rowe Price contends that rising inflation risk can be mitigated and offers three suggestions as to how investors can help protect their portfolios.

Video: Beyond headline multiples – U.S. Equities (Federated Hermes, Nov 2021)

For compliance reasons, this paper is NOT accessible in the United States

In this video, experts from Federated Hermes offer their insights into the U.S. economy and U.S. equity market valuations, focusing on ‘quality’ small- and mid-caps which they believe look cheap in both relative and absolute terms.

Asset Allocation Monthly – November 2021 (BNP Paribas AM)

In this asset allocation paper, BNP Paribas AM continues to favour equities over most government debt in the medium term, as they suggest inflationary pressures will subside, central bank stimulus will fade gradually, and economies will see strengthening growth.

Asian Bonds Increasingly Sought For Diversification (Eastspring, 2021)

This collaborative survey conducted by Eastspring Investments and Institutional Investor magazine highlights investor attitudes towards the Asian fixed income market. Insights are offered on its appeal and the challenges faced, while also highlighting some of the strategies used by investors when accessing this distinctive market.

Inflation Protection: Building robust portfolios (Mercer, 2021)

This paper from Mercer suggests that the construction of robust, resilient portfolios has become more challenging over the last couple of years. Inflation risk has increased, and they suggest a range of diversified strategies that may provide some respite across a range of scenarios.

Comparing Factor Versus Sector Optimization (Journal of Asset Management, 2021)

In this paper the authors consider whether factor or sector asset allocation strategies offer investors superior performance.

When Diversification Fails (Investments & Wealth Institute, 2021)

This article investigates how, in stable market conditions, correlations between asset classes can weaken, potentially creating a case for anti-diversification strategies.

Allocating to Crypto: Considerations (Cambridge Associates, 2021)

Cambridge Associates’ paper offers some insights into the cryptoasset landscape, while suggesting ways in which investors might consider gaining exposure to the asset class.